Natural hedgers primarily aim to:

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Study for the CAIA Level I Test. Prepare with flashcards and multiple choice questions. Explore diverse topics in alternative investments. Ace your CAIA exam!

Natural hedgers primarily aim to hedge their risks. This approach is common among businesses that have an inherent exposure to price fluctuations in commodities or currencies related to their core operations. For example, a company that produces agricultural goods may face risks from the volatility of crop prices. By using hedging strategies, such as futures contracts or options, these businesses seek to stabilize their revenues and manage the financial uncertainty associated with market price movements.

While maximizing speculative returns or trading aggressively in volatile markets could potentially increase profits, these strategies do not align with the objectives of natural hedgers, who prioritize risk management over speculation. Additionally, while reducing operational costs is a general business concern, it isn't the primary focus for natural hedgers, who primarily look to mitigate their exposure to market volatility rather than to minimize costs directly. Thus, the goal of natural hedgers is clearly centered on preventing losses through risk management rather than pursuing active trading strategies or reducing expenses.

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